Will China and the US be partners or rivals in the new energy economy?

When Chinese president Hu Jintao visited the US this month, many issues made headlines, but one that didn’t is nonetheless important: clean energy cooperation, competition, or both. This issue is a litmus test for the two superpowers’ ability to build a partnership based on mutual needs and opportunities. The outcome will affect our global economic, environmental and geopolitical future, and may influence the range of clean energy opportunities for emerging economies in fundamental ways.

Cooperation does exist between the US and China, with longstanding joint work on energy efficiency standards, and through a new but underfunded US-China Clean Energy Research Center. But the game has to be raised with higher-profile actions. Far more can be gained globally if a spirit of cooperation permeates the high-level political dialogue. These are not the only two nations to watch, but because they are the two largest emitters of greenhouse gases, and the two largest economies on the planet, signs of a shared vision of the future would mean a great deal.

The two countries need each other to build the clean energy economy. China needs energy to grow, and can drive the exponential growth needed to move renewable energy to the center of the global energy system. The US has a nimble and deep research and development system, and serial innovators and entrepreneurs whose Silicon Valley mentality has created wealth many times over. US capital market and enterprise management capacities are huge.

If necessity is the mother of invention, cooperation may be the missing father. The rapid pace of China’s production and sales of clean energy technology is the result of necessity. China is the world’s largest energy consumer, and while its coal resources are vast—70% of China’s energy and 80% of its electricity come from coal—no other nation pays as high an environmental cost for energy. China has no other path to continued growth and energy security for its 1.3 billion people than through renewable energy and energy efficiency. To meet the rising demand, China invested over $50 billion in clean energy in 2010 alone. To put this in perspective, the Chinese invested twice as much in clean energy as did the US.

The US, too, is dependent on coal for 49% of electricity in 2010. Energy is the largest component of the US annual imports, with crude oil only accounts for 38.4% of the US trade deficit in 2009. Both nations made clean energy investment central to their recent national stimulus plans, and President Obama has many times linked economic recovery to green jobs.

A new model could emerge in which the US and Chinese governments cooperate to create an environment in which companies compete to benefit everyone. The US company First Solar signed an agreement in May 2010 with the Ordos City Government in Inner Mongolia to develop the world’s largest solar power plant, with 2 GW in capacity. Once formalized, it will allow First Solar to bring its advanced photovoltaic (PV) technology to China while leveraging its experience in large-scale PV power plants. China’s Suntech, which is setting up its first manufacturing plant in Arizona, will be able to reduce the time, cost, and emissions in its manufacturing process, while creating hundreds of jobs.

The US and China need each other to use solar and wind energy in a transition away from coal. To do this, they must accelerate large-scale smart grid deployment, sometimes called the internet of renewable technology. The US and China have the two best on-shore wind energy resources on the planet, but in each case the best resources are far from major population centers. An ideal area for joint development is the smart grid; where advanced technology from the US joins forces with a fast-growing market in China, to deploy at scale the clean energy transmission and distribution, and storage infrastructure that makes solar and wind energy possible at utility-scale. Indeed, the market speaks loudly: General Electric has signed a strategic cooperation agreement with State Grid Corporation of China and the Chinese Academy of Science to jointly develop smart grid standards. More such partnerships are needed.

It is said that “the best way to turn an acquaintance into an opponent is to treat him as one.” The best way for each nation to turn the other into a partner is treat them like one.

Comments

Justin Yifu Lin, WB Chief Economist, spoke at the US-China Forum on Clean Energy last week and agrees on the importance of this issue to both countries and the world: http://blogs.worldbank.org/developmenttalk/china-the-us-and-clean-energy-cooperation